Blockchain, Herding and Trust in Peer-to-Peer Lending

Forthcoming, Managerial Finance Special Issue on Blockchain

34 Pages Posted: 19 Dec 2018 Last revised: 9 Mar 2019

See all articles by Laura Gonzalez

Laura Gonzalez

California State University, Long Beach - Department of Finance, Real Estate & Law; Fordham University

Date Written: December 5, 2018

Abstract

Blockchain is a decade-old “trust machine”, and peer-to-peer (P2P) lending a decade-old alternative to banks in online platforms where lenders have limited information about borrowers. The gradual implementation of blockchain technology in P2P lending platforms facilitates safer transparent quick access to funds without having to deal with the complex, slower and more costly loan processes of banks. However, other uses of blockchain may be needed. This study is the first behavioral experiment to examine heuristics when lenders compare standard bidding information. Specifically, it examines 909 lending decisions by 303 undergraduate finance students on a mock P2P site in which either male or female loan applicants are reported to be highly trusted by other lenders. Overall, the investors who have experienced financial trauma appear more susceptible to trust-enhancing heuristics. This herding effect appears more pronounced for male investors lending to trusted female applicants. In conclusion, blockchain can arguably support much needed financial inclusion in P2P lending by using technology not only to facilitate transactions, but also to assist in monitoring and bad loan recovery.

Keywords: blockchain, fintech, peer-to-peer lending; P2P, financial inclusion, financial trauma, trust, experimental finance

JEL Classification: G21, G23, G4

Suggested Citation

Gonzalez, Laura, Blockchain, Herding and Trust in Peer-to-Peer Lending (December 5, 2018). Forthcoming, Managerial Finance Special Issue on Blockchain. Available at SSRN: https://ssrn.com/abstract=3297053 or http://dx.doi.org/10.2139/ssrn.3297053

Laura Gonzalez (Contact Author)

California State University, Long Beach - Department of Finance, Real Estate & Law ( email )

United States

Fordham University ( email )

2008-2016
New York University Visiting Scholar 2014
New York, NY NY 10023
United States

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